Asset Protection in Australia: A Practical Guide

Asset protection is about arranging your affairs so that your home, savings, business and investments are less exposed to future risks, such as a business failure, a lawsuit, a guarantee that is called upon or a relationship breakdown. Done properly and early, it is a legitimate part of financial and legal planning. Done too late, or for the wrong reasons, it can backfire.

This article is general information about asset protection in Australia, with a focus on New South Wales. It is not advice on your situation.

What asset protection is, and what it is not

Lawful asset protection means putting sensible structures and safeguards in place before there is any claim or debt on the horizon. It is not hiding assets, moving property to a relative once a creditor appears, or giving a false picture of your finances. Courts can set aside transfers made to defeat creditors, and trustees in bankruptcy can challenge them, and the consequences can be serious.

Common tools

• Ownership structure: deciding whether assets are held personally, jointly, through a company or through a trust.
• Separating risk from assets: keeping the business that carries risk separate from the entity that owns valuable property.
• Insurance: public liability, professional indemnity, directors' and officers' and income protection cover.
• Superannuation: super is generally treated differently from other assets if you become bankrupt, although it has its own rules, and contributions made to defeat creditors can be clawed back.
• Estate planning: wills, testamentary trusts and binding death benefit nominations that protect what you leave behind.
• Agreements: binding financial agreements and carefully drafted contracts and guarantees.

Why timing matters

The earlier you plan, the more options you have. Transfers made when you are insolvent, or shortly before a claim, are the ones most likely to be challenged. Under the Bankruptcy Act 1966 (Cth) and section 37A of the Conveyancing Act 1919 (NSW), certain transfers can be set aside, including those made for less than their value or with the purpose of putting assets beyond the reach of creditors.

Frequently asked questions

Is asset protection legal?

Yes, when it is done openly, in good time and for legitimate reasons. It is unlawful when its purpose is to defeat existing or foreseeable creditors.

Can I just put my home in my spouse's name?

It is not a reliable strategy. A transfer may be challenged, it may have duty, capital gains tax and mortgage consequences, depending on the circumstances, and it can leave you without legal ownership of the home. Relationship breakdown is also a risk.

Do I need asset protection if I am not in business?

Many people do benefit from reviewing their structures, for example property investors, professionals, people with significant savings, and families planning for children and later generations.